Capital Gains Taxes on Retirement Funds

[avs129]

Will I have to pay capital gains taxes on retirement funds even if I withdraw after age 59.5?

[Corrlich44]

Hi avs129,

Just to be clear, capital gains taxes are not assessed on the distribution of retirement funds.

But, your personal income situation could subject you to Federal Income Tax on a possible retirement distribution, regardless of whether you are under or over 59 1/2.  That age impacts the basis for prematurely taking funds out of a retirment account under the age of 59 1/2 and being subject to a 10% penalty. Federal income tax could still be imposed on that distribution on your year-end tax return, as long as those funds were not transferred to another financial institution within 60 days of withhdrawal.

[DoninGA]

You only have to pay the taxes owed on the withdrawal of the funds from the retirement account.  Any sales of stocks within the retirement fund are not subject to capital gains.

[avs129]

If I withdraw from my Rollover IRA or Roth IRA after age 59 1/2, will the taxes be taken out at the time of withdraw or I will pay the taxes when I file and at what rate?

[Corrlich44]

Those are both great questions.

If you have funds in a ROTH IRA, are over 59 1/2 and have allowed all funds to sit there for more than 5 years, none of the earnings would be subject to income tax, as well as the fact, you can always withdraw your own investment within the ROTH IRA because after-taxed funds were used to invest in the ROTH IRA in the first place.

If you take funds out of a ROLLOVER IRA, they are subject to income tax at year-end and it would be the policy of the plan administrator to allow you to withhold any tax at all on the day of distribution, but they would need to you to sign a form holding them harmless, if you choose to do so.

No matter what, income tax could still be due on your tax return and may submit you to underpayment penalties by not making estimated tax payments at the time the income was withhdrawn during that tax quarter.